No Holiday From Interest-Rate Worries?

Is it too soon to start worrying again? A day after the Fed, even as it shifted its so-called "bias" back to neutral, made its sole note of caution the observation that "labor markets have continued to tighten over recent quarters," those markets went and tightened a little more. The Labor Department announced Thursday that jobless claims dropped for the week ending June 26, and indeed for all of June. Fed chief Alan Greenspan’s current inflationary pet peeve -– the possibility that low unemployment will push up workers’ wages, and consequently prices -– is back on alert.

"This is the Fed’s main concern right now," says TIME senior economics reporter Bernard Baumohl. For now, Greenspan & Co. claim to be satisfied that increases in productivity, supposedly a byproduct of the computer age, are more than offsetting any wage pressures. But the markets know that it’s data, not dogma, that moves this Fed chairman, and that Greenspan is ready to drop the "new paradigm" the instant it springs a leak. On Thursday, investors were already selling into Wednesday’s heady 155-point rally, and there’s more job news coming on Friday. The consensus is that June unemployment will stay at May’s 4.2 percent, a 29-year low -– and that might be enough to put Street types in the mood to dump some stocks before heading out to that chichi Hamptons barbecue. The Fed’s neutral bias may have been a surprise on Wednesday (though not to those who read this space on Tuesday), but it shouldn't take all those Harvard MBAs too long to realize that "neutral" cuts both ways.